EU Releases Final Guidelines on Foreign Subsidies to Tackle Market Distortions in Public Procurement and Beyond

The European Commission has officially published its long-awaited Guidelines under the Foreign Subsidies Regulation (FSR) on January 9, 2026, providing detailed clarity on how it will identify and address distortions caused by non-EU government support to companies operating in the European single market. Led by Executive Vice-President for Prosperity and Industrial Strategy Stéphane Séjourné, the move strengthens protections against unfair advantages, particularly in high-value public procurement tenders, while promoting a fair competitive environment for European businesses.

Although the guidelines avoid naming specific countries, they respond to growing concerns over subsidized bids from non-EU firms — notably in sectors like infrastructure, renewable energy, and medical devices — that undercut local competitors through artificially low pricing.

Core Purpose: Ensuring a Level Playing Field

The Commission aims to safeguard the integrity of the EU’s internal market by preventing foreign financial contributions from tilting competition. As Séjourné stated, the focus remains on guaranteeing that EU-based companies can operate under equitable conditions, free from external distortions that undermine merit-based outcomes.

This initiative builds on the Foreign Subsidies Regulation (Regulation (EU) 2022/2560), effective since 2023, which requires notifications for large mergers and public tenders involving significant foreign financial contributions and empowers the Commission to investigate and remedy issues on its own initiative.

How the Commission Assesses Distortions

The guidelines outline a structured two-step evaluation process for determining whether a foreign subsidy creates a market distortion:

1. Competitive Advantage Check — The Commission examines if the subsidy enhances the recipient’s position in the EU market.
2. Impact on Competition — It then analyzes whether this advantage alters market behavior or dynamics in ways that harm other participants, such as reducing prices unfairly or crowding out rivals.

For subsidies not directly tied to EU activities, a deeper review assesses the potential for redirection toward European operations. The guidelines include non-exhaustive examples of indicators and presumptively distortive subsidies (e.g., those providing unlimited guarantees or export support).

Special Focus on Public Procurement

In public tenders, the Commission will scrutinize bids suspected of benefiting from foreign subsidies. The process involves:

• Verifying if the subsidy influenced the bid’s terms.
• Comparing the offer against competitors’ submissions and the contracting authority’s estimates to detect if it’s unduly advantageous (e.g., abnormally low prices).
• Determining if the advantage stems primarily from the subsidy rather than legitimate efficiencies.

If a distortion is confirmed, the Commission weighs any positive effects (such as innovation or environmental benefits) against the harm. Positive outcomes must outweigh negatives for no action to be taken; otherwise, remedies may include bid adjustments, contract prohibitions, subsidy repayments, or other corrective steps.

This framework draws from recent enforcement actions, including probes into Chinese-led consortia in tenders for solar parks in Romania and metro rolling stock in Lisbon, where bids were significantly lower (10-30% below rivals) due to alleged state support.

Broader Implications and Ongoing Enforcement

Since its rollout, the FSR has triggered notifications for hundreds of M&A deals and public procurement procedures, with the Commission conducting ex officio investigations into potentially problematic practices. The guidelines enhance predictability for businesses while reinforcing tools to counter distortions that could erode Europe’s industrial base.

Séjourné emphasized that these measures align procurement with principles of fairness and merit, protecting public funds and bolstering long-term competitiveness across strategic sectors.

The Commission will continue refining its approach through case experience and plans a comprehensive implementation report by mid-2026, which could lead to further adjustments.